Productivity in U.S. Climbed 3.1% in Third Quarter

The productivity of U.S. workers grew for the first time this year during the third quarter. The measure of employee output per hour increased at a 3.1% annual rate in the July-September period, following declines in productivity during each of the two previous quarters, according to Labor Department data released today in Washington. Meanwhile, expenses per employee fell at a 2.4% rate after a 2.8% gain in the second quarter.

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Employers sought to cut costs following a slowdown in growth, keeping payrolls down while squeezing more output from existing employees. Lower labor expenses, which account for roughly two-thirds of the cost of producing goods and services in the U.S., could help keep down inflation. The drop in unit labor costs is also good for companies’ profit margins.

Third-quarter productivity had its biggest gain since the first three months of 2010. During the second quarter of 2011, efficiency decreased at a 0.1% pace after a 0.6% decline in the first quarter, the first back-to-back drop since the third and fourth quarters of 2008.

Despite increased productivity, hourly compensation rose just 0.6% during the third quarter, and dropped at a 2.4% rate when adjusting for inflation, the biggest decrease since the third quarter of 2008.

Compared to the third quarter of 2010, productivity was up 1.1% while labor costs climbed 1.2%. However, labor costs had dropped 2% in 2010 in their biggest decrease since the Labor Department began keeping track in 1948.

Productivity in manufacturing increased a 5.4% annual rate during the third quarter, while unit labor costs for factories dropped at a 4.6% annual rate. However, despite third-quarter figures, the productivity surge that helped boost economic growth in the U.S. since 1997 has probably ended, according to one researcher at the Federal Reserve Bank of New York.

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There is a 90% chance that gains in hourly worker output have fallen to levels consistent with the quarter-century of slow growth that spanned 1973 to 1997, wrote New York Fed economist Robert Rich in a report in September on the bank’s Liberty Street Economics blog.

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